Govt may hike fuel prices to offset cost of extra cylinders

The oil ministry may raise prices of diesel by Rs 1 a litre or that of cooking gas by Rs 100 to neutralise the impact of its plan to increase the supply of subsidised cylinders to households, government officials said.

NEW DELHI: The oil ministry may raise prices of diesel by Re 1 a litre or that of cooking gas by Rs 100 to neutralise the impact of its plan to increase the supply of subsidised cylinders to households, government officials said.

"A Re 1 hike in diesel prices would generate about Rs 8,000 crore a year, which is sufficient for three additional cylinders in a year. About Rs 100 hike in domestic LPG can also make the move revenue neutral. There are other options that will be presented to the Cabinet," a government official said requesting anonymity.

Other options include supplying diesel at market rates to bulk consumers such as Railways, defence, industries and state road transport undertakings, and stopping diversion of LPG and kerosene through direct transfer of cash subsidies, the official said.

Diesel is sold at Rs 47.15 a litre in Delhi. "It is likely that the Cabinet may decided for a combination of the suggested options so as to have minimum impact on any particular consumer," the official said.

The suggestions will be placed before the Cabinet for its decision soon after the Gujarat assembly elections, officials in the oil ministry said. Oil minister Veerappa Moily had last week announced his intention to raise the cap on supply of subsidised cooking gas to nine cylinders per household in a year from current restriction of six and invited the Election Commission's ire that the move was against the election code of conduct.

Diesel prices in India are about Rs 10 per litre less than international rates, which would translate into a revenue loss of about Rs 92,000 crore in 2012-13 if the gap in prices persists.

"A one rupee hike on diesel prices is justified, especially when the consumers want three additional gas cylinders in a year," the official said. "The finance ministry is not opposed to raising the cap on subsidised cylinders, but it is not in a position to bear additional subsidy burden. So the oil ministry proposes to make it revenue neutral through several options," the official added.

Another way to provide additional six cylinders is by reducing diversion, officials said. The oil ministry aims to implement direct transfer of subsidy in 51 districts from February, officials said. The oil secretary is directly monitoring its implementation every week, they added.

In September, the government had raised diesel prices sharply and said each household would get only six subsidised cylinders a year to control the uncomfortably high oil subsidy bill and cut losses of state firms. After receiving six subsidised cylinders, consumers would have to pay market prices, which are significantly higher. The government eventually wants to sell all LPG cylinders and kerosene at market rates across the country by 2013-14.

A committee, led by Prime Minister Manmohan Singh is monitoring the development. The Direct Transfer of Cash Subsidies on Kerosene 2012 (DTCK-12) has already been launched in 11 states and a proposal for a similar scheme for the entire country will be sent to the cabinet soon, officials said. According to the oil ministry, the proposed scheme would save Rs 7,500 crore in kerosene and Rs 7,200 crore on cooking gas annually.